The IEA has published its first projections for 2013 in its July Oil Market Report. This envisions a modest acceleration in global liquids demand growth to 1.0mmb/d, entirely offset by rising non-OPEC liquids and OPEC NGL production, leaving the call on OPEC crude flat YoY at 30.5mmb/d. Non-OECD demand is projected to exceed OECD demand for the first time.
In our view, the IEA has taken fairly conservative positions on both supply and demand forecasts, which is not surprising given the level of uncertainty. Nevertheless, with the prospective call on OPEC crude flat YoY, underlying OPEC production capacity rising and current OPEC production significantly in excess of demand, we expect OPEC supply management to be critical in determining the oil price during 2013, just as it has been this year. With Saudi Arabia explicitly targeting USD 100/bbl oil, there is potentially a slight upside price risk to our 2013 price forecast of USD 95/bbl for Brent, but we see no strong reason to expect the price to average the USD 115/bbl currently anticipated by consensus.
For 2012, the IEA has left its demand forecast unchanged at 89.9mmb/d, but cut its non-OPEC liquids forecast 0.2mmb/d with a concomitant increase in its estimated call on OPEC crude to 30.5mmb/d. However, OPEC production in June is put at 31.8mmb/d, well above the call on OPEC crude for the year and through 2H12. From that perspective, the market remains over-supplied and until that over-supply stops we continue to expect price risks to lie on the downside. Although consensus appears to believe that new sanctions pressure on Iran might close the gap, we do not. At some point we expect that Saudi Arabia, at least, will have to cut from current levels of output if the market is to be balanced; on the IEA’s estimates, Saudi production hit a new modern day record of 10.15mmb/d in June.